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Diageo Procurement

Diageo backs marketing efficiencies to cure sales hangover

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By Seb Joseph, News editor

January 29, 2015 | 3 min read

Diageo has hailed cost cuts to its marketing for contributing to better brand-building initiatives over the last six months as it backs a sustainable approach to cost-savings to offset declining sales.

Diageo

Revenue at the alcohol maker dipped 1 per cent to £5.9bn in the six months to December, plagued by struggles in emerging markets including a crackdown on extravagant spending in China and an economic slowdown in Brazil. It was compounded by slowdowns in mature markets such as Europe where the business sales slipped 4 per cent in the period.

The losses come despite increased marketing spend across all regions except Asia Pacific. Incremental spend in Western Europe was ploughed into innovation and its premium reserve brands, both of which the company predicts will become the region’s strongest growth outlets. In North America, marketing investment was upweighted behind the Smirnoff brand and its tequila range although the business said the market was yet to fully recover from low consumer spending.

The company hailed its procurement strategy, which shaved 3 per cent off its total marketing outlay, for supporting the investment across its markets. It contributed to what Diageo’s chief executive Ivan Menzes said was an “improved” performance during the half following a period of overexposure to challenging conditions in emerging markets.

"We have improved our performance during the half and we have again shown: the strength of our brands, which is driving our share gains; our strong innovation capability, which has enabled us to access new growth opportunities; and our focus on cost," added Menzes.

"We have already taken action to improve the performance of those brands and markets that have not performed as well as we would expect. This contributed to our stronger second quarter performance and I expect to maintain this momentum through the year."

Part of the momentum will come from ongoing restructures at the business, designed to deliver cost savings of £200m a year by 2017. Last year, it pulled regional marketing teams from emerging markets that led to several senior marketers departing the business.

The push for a more sustainable approach to cost savings heaps pressure on the company’s renewed focus on distribution to come good over the 12 next months. Brands teams are increasingly looking to promotional strategies to get in front of drinkers in bars and clubs.

Diageo will also be relying on the revamped marketing and media strategies for brands such as Smirnoff, Guinness and Johnnie Walker to yield stronger return-on-investment as it searches for new ways to cut costs from the business. This has seen it vow to focus on bigger campaigns capable of resonating in local markets for its global brands, as well as step up efforts in the e-commerce space.

Diageo Procurement

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